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LATEST FROM THE SUPREME COURT

We issue today’s special edition of Fresh from the Bench to summarize two important precedential decisions issued this morning by the Supreme Court. Both cases concern inter partes reviews, and both cases open the door for significant future litigation regarding questions baited by the Court but not resolved by today’s decisions.

The Supreme Court held today that the inter partes review process created by Congress in the America Invents Act does not violate Article III or the Seventh Amendment of the Constitution.

The case hinged on whether patents are considered “public rights” or “private rights.” This distinction is important because, generally, “Congress [has] significant latitude to assign adjudication of public right to entities other than Article III courts.” Public rights cover matters “which arise between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments.”

In this case, Justice Thomas, on behalf of a seven-justice majority, wrote that, notwithstanding a lack of clarity over the distinction between public and private rights jurisprudence, “Inter partes review falls squarely within the public rights doctrine.” Citing hundred-year-old authority, the Court first concluded that “the grant of a patent is a matter involving public rights” because it is a public franchise that is given to the patentee by the government on behalf of the public.

The Court then determined that “Inter partes review involves the same basic matter as the grant of a patent. So it, too, falls on the public-rights side of the line.” The fact that an IPR takes place after the patent has been granted is a “distinction that does not make a difference here.” That is because “Patent claims are granted subject to the qualification that the PTO has the authority to examine—and perhaps cancel—a patent claim in an inter partes review.”

The Court distinguished three cases relied on by the patent owner suggesting that patents are private property. Responding to a case suggesting that patent rights are “private property of the patentee,” the Court held that patent property is a public franchise, which is entitled to all of the rights and statutory conditions of the grant of a public franchise. The Court also concluded that the fact that the PTAB uses terms of the judiciary, such as “trial,” “judges,” and “judgment” is not dispositive of whether the agency is exercising judicial power.

The Court also held that IPRs do not violate the Seventh Amendment right to trial by jury. Rather, “when Congress properly assigns a matter to adjudication in a non-Article III tribunal, the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.”

Importantly, the Court emphasized that its holding was “narrow,” and that it was not resolving many issues concerning the constitutionality of IPRs. For example, it was not addressing “the retroactive application of inter partes review” where “that procedure was not in place when [the] patent issued.” It also stated that it was not addressing due process concerns. These two caveats to the Court’s decision are assuredly going to receive attention in future litigation, particularly given the Court’s reliance on the fact that patents are now granted subject to the IPR process.

Justices Breyer, Ginsburg, and Sotomayor issued a one-paragraph concurrence, emphasizing that even private rights may be subject to agency disposition. Justice Gorsuch dissented, in an opinion joined by Chief Justice Roberts.

In this parallel case, argued the same day as Oil States Energy, the Supreme Court held that the final written decision in any inter partes review must address all claims challenged by the petitioner in the Petition. This case undoubtedly will require an adjustment to Patent Office procedures for future IPRs.

Petitioner SAS challenged a number of claims in a petition for an IPR. The PTAB instituted review on some, but not all of the claims. The Board ultimately found that all of the instituted claims, except for one, were unpatentable over the prior art. SAS appealed the decision not to institute an IPR on other claims challenged in the Petition. The Federal Circuit affirmed on that issue. SAS then appealed to the Supreme Court.

In an opinion written by Justice Gorsuch, the Supreme Court reversed, holding that, if the Patent Office institutes review at all, it must institute review on all claims, and must issue a final written decision with respect to all claims challenged in the Petition. Justice Gorsuch pointed to 35 U.S.C. § 318(a), which states that the Patent Office “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner…” (emphases added). Applying canons of statutory construction, the Court found this to mean that “the Board must address every claim the petitioner has challenged” in its Final Written Decision (emphasis in original). The Court further found that the statute authorizing inter partes review is unambiguous on this point. Notably, the Court did not address whether PTAB must institute review on all asserted grounds, but instead focused on the necessary review of all challenged claims. That could be a significant issue as the PTAB has routinely instituted IPRs based on some grounds and denied other grounds at the institution stage as redundant or not raising a significant enough question of patentability. It remains for future courts to determine whether the Supreme Court’s decision in SAS will be extended to require the PTAB to address all challenged grounds in final decisions, as well as all challenged claims.

In reaching its conclusion, the Court undertook a review of the statutory provisions enabling inter partes reviews, and concluded that Congress envisioned an adversarial process bounded by the Petition, not by PTO’s or the Director’s discretion. The Court also held that any policy arguments favoring partial review were properly directed to Congress, and not to the Court. The Court also found that its decision was not precluded by 35 U.S.C. § 314(d)’s admonition that decisions whether to institute are “final and nonappealable,” as Congress did not signal a clear intent to foreclose review of whether the PTO had exceeded its statutory bounds.

In one of two dissents, Justices Ginsberg, Breyer, Sotomayor and Kagan issued a one-paragraph opinion that the law does not appear to preclude PTO from outright rejecting Petitions containing weak challenges, and then instituting review on a subsequently-narrowed Petition. They characterized partial institution as a “more rational way to weed out insubstantial challenges,” and argued that the majority would thus needlessly require PTO to either iteratively winnow petitions, or preside over wasteful litigation, in service to a “wooden reading” of § 318(a).

Justices Breyer, Ginsburg and Sotomayor issued a more detailed dissent, which Justice Kagan joined in most parts. Applying a comprehensive review of the enabling statute, this dissent disagreed that § 318(a)’s reference to “any patent claim challenged by the petitioner” necessarily means “challenged in the original petition,” and could just as easily refer to claims remaining challenged in the IPR itself, such as after Patent Owner cancellation or settlement. Given this ambiguity, Justice Breyer concluded that the “partial institution” power was entitled to deference under Chevron.